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Schwartzkopf amends HB333

Bill clarifies process for towns to enact new taxes

Chris Flood

June 12, 2014

Despite proposed changes to House Bill 333, Dewey Beach officials continue to stand by their assertion that the bill will have a negative affect on their ability to collect fees and taxes associated not only with administering the cost of issuing business licenses but also with the costs towns incur because of licensees' acitivities SOURCE FILE PHOTO

A bill designed to clarify the process by which Delaware towns can enact a tax is making its way through the House with two proposed amendments.

Dewey Beach officials continue to contend the bill will restrict the town's ability to collect taxes and fees that help offset expenses that are incurred from the enforcement of business activities.

Speaker of the House Rep. Peter Schwartzkopf, R-Rehoboth, is the primary sponsor of House Bill 333; he denies Dewey officials' characterization of the measure. He said the bill protects taxpayers and businesses from a town that wants to charge unreasonably high and unnecessary fees or taxes. He said the General Assembly already must approve all new taxes, but it's up to the town to set the rates, which can already be challenged under current case law.

Introduced May 8 by Schwartzkopf, House Bill 333 says a town has the ability to tax or collect fees that are specifically addressed in their charters; that an all-powers provision in a town's charter does not supersede the first part; and that a town can collect a fee or tax, as long as it is reasonably related to the cost of administering the program.

The first proposed amendment, introduced May 29, removes reference to setting fees or taxes at a reasonable rate. It also introduces a second section that says the bill will apply only to new taxes created on or after June 1, 2014.

The second proposed amendment, introduced June 5, adds wording that requires a two-thirds vote from both branches of the General Assembly for the bill to pass.

Schwartzkopf said the first amendment was added because he's trying to work with towns that opposed the measure's original language. He said the second amendment was added because House attorneys said the bill affects the municipal charters of any town that has the all powers clause and therefore must be passed by a two-thirds vote to change town charters.

The change to a two-thirds vote means the bill will need 28 votes in the House instead of 21.

“That's a big change,” said Schwartzkopf.

The speaker introduced the bill after a December 2013 Chancery Court decision ruling in favor of Dewey Beach. The court found the town's all powers clause gave it the power to collect an annual business license fee.

The ruling came in a suit brought by Dewey-based Highway One, owned by Alex Pires, whose businesses include the Rusty Rudder, Bottle and Cork and Northbeach, among others. The suit was filed in February 2013 against the town's business license fee, claiming the town has no authority to collect the fee, which Pires said was a tax. The lawsuit was dismissed after the ruling, but Highway One appealed, and the case is now moving through Delaware Supreme Court.

During a May 10 commissioners meeting, Dewey Beach Mayor Diane Hanson said Schwartzkopf introduced the bill because he and Pires are friends, and Schwartzkopf wants to help out a wealthy businessman. She said the bill removes a town's ability to enforce the all-powers clause in its charter and creates a situation where towns could lose out on a significant source of revenue to pay for police and code enforcement.

On June 2, Dewey Beach Town Manager Marc Appelbaum said the amendments make the bill better, but he would prefer wording that says public welfare costs are included as part of a town's tax and fee program, not merely the cost of administering the fee.

Towns need a provision that allows government to offset expenses related to licensee's activities, Appelbaum said.

Rehoboth Mayor and Delaware League of Local Governments Vice President Sam Cooper said he thinks the amendments help, but in general, he thinks the bill raises more questions than it provides answers.

“I don't know if this bill solves anything. This best of both worlds would be that the bill passes and then is forgotten about,” said Cooper.

Rehoboth does not have an all-powers clause in its charter, Cooper said, but he said some communities are concerned because they put it in their charter after being told it was legally sound. If this bill passes, they might have to go back and rework everything, he said.

Cooper said he's been following the bill's progress, but he thought Schwartzkopf would have moved on it before now. He must be getting some push back on it from somewhere, Cooper said.

Schwartzkopf said he planned to introduce the bill to the House June 5, but some members wanted to go back and speak with town officials in their districts first. He said the plan now is to introduce the bill Tuesday, June 10.

Schwartzkopf continues to defend the bill. What this bill is trying to do, he said, is protect the constitutional rights of the constituents from a town council that gets a little too rambunctious with its taxing.